Alinta and its ex-adviser Macquarie Bank struck a deal yesterday that allows work to continue on a management buyout of Australia's biggest owner of energy transmission assets. The deal is aimed at overcoming the apparent conflict of interest after an announcement earlier this month of a $10 billion Management Buyout (MBO) of Alinta, Australia’s largest energy infrastructure company. Macquarie has a detailed knowledge of Alinta's corporate affairs after working on some of its biggest deals, including the recent $6.5 billion asset swap with the NSW gas provider AGL.
Macquarie Bank has been a long-term adviser of the Perth-based Alinta. But the company was rocked on 9 January 2007, when Macquarie Bank Limited advised them of the MBO which was being developed by a group that included Alinta Chief Executive Officer Bob Browning and Chairman John Poynton. With three days of the announcement, Browning and Poynton both quit Alinta due to a perceived conflict of interest over the bid. Poynton told the ABC it was a difficult decision to step down from his position on the board. "I thought the protocols that had been put in place were going to be fine, but there's obviously been a lot of criticism and comment," he said.
Although Alinta also dumped Macquarie as its adviser, the two parties continued to negotiate an agreement that would allow the bank to act as the key adviser to the MBO. Macquarie stated it would not act for the buyout group until it had the Alinta board’s consent and assurance that it considered the buyout proposal “friendly”. Alinta was worried that Macquarie would have a competitive advantage over rival bidders but was also keen to ensure one of the country’s most aggressive investment banks remained involved in the bidding process to fuel competitive tension.
With relations remaining friendly between the two parties, an early solution was always likely. According to an Alinta news release of 29 January, Macquarie has now agreed to five conditions to allow it re-enter the negotiations. The conditions are
(i) Macquarie to return all information that was the product of its advisory work for Alinta
(ii) Macquarie to not make any use of any of this information except under conditions Alinta will prescribe for all potential bidders
(iii) If Macquarie is admitted to an Alinta “dataroom” then it is only permitted to use information which is in the dataroom
(iv) Macquarie confirms to Alinta that it does not have any additional non-public information of potential use to a rival bidder.
(v) Macquarie to provide list of potential conflict of interest employees to be excluded from the sale process.
As a result, the Alinta Board has allowed Macquarie to participate on the buy side of any ensuing transactions. According to the news release, “Macquarie may participate in the development of a proposal on the condition that it will not participate in any bid for Alinta except through the sale process organised by Alinta”.
Alinta was a Western Australian gas distributor that has been transformed into the largest energy infrastructure company in Australia in the last four years. Macquarie Bank were at the heart of the deals that make this possible. In 2003, Alinta doubled in size and gained an east coast presence with the $629m takeover of the Australian assets of the troubled US energy group Aquila. A year later, they took on a second US company’s local assets, Duke Energy. Alinta paid $1.7 billion to acquire Duke's portfolio of three major gas pipelines and four gas-fired power stations in Western Australia, Queensland, Victoria, NSW, Tasmania and New Zealand and the strategic Eastern Gas Pipeline connecting Bass Strait to Sydney.
Then in November 2006, Alinta announced a restructure after its $6.5 billion infrastructure asset swapping merger/demerger with Australian Gas Light (AGL). With Alinta owning the WA market and the Sydney-Bass Strait pipeline and AGL (through subsidiaries) in control of Victoria and NSW, the combined company now owns almost 90% of Australia’s gas transmissions industry.
Alinta has been in the financial wars ever since. Through the AGL deal, Alinta inherited 30% of Australian Pipeline Trust (APT). On August 3 Alinta gave the ACCC legally enforceable undertakings to dispose of AGL's 30 per cent stake in APT as the quid pro quo for the competition watchdog agreeing not to oppose the Alinta and AGL merger. But then CEO Bob Browning raided the APT and bought another 10 %. However this was ruled invalid by the Takeovers Panel after a protest by APT. The Panel made a declaration of “unacceptable circumstances” on the basis that the acquisition breached the ‘spirit’ of the legislation and the effect this had on control of APT. The Panel ordered that the 10% security holding acquired by Alinta be vested in ASIC to be sold.
Shares in Alinta were trading at $13.82 at close of business yesterday, up $2.70 since the September Takeover Panel ruling.